In re Diebold Nixdorf, Inc. Securities Litigation.

Background

Diebold Nixdorf, Inc. was formed after Diebold, Inc. completed its 2016 merger with Wincor Nixdorf AG. The company and its executives described the integration as progressing well and projected substantial cost savings through the company’s DN2020 program. During the alleged class period, the company repeatedly reduced its revenue and earnings forecasts. Later, it reported substantial losses, recorded a goodwill impairment connected to the merger, abandoned DN2020 in favor of a new plan called DN Now, and disclosed weaknesses in its internal controls.

Indiana Laborers Pension and Welfare Funds, acting as lead plaintiff for a proposed class of purchasers of Diebold Nixdorf securities, asserted two types of claims. First, it alleged securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, based on statements about the merger integration, cost savings, goodwill, required financial disclosures, and internal controls. Second, it alleged that the individual defendants were liable as controlling persons under Section 20(a) of the Exchange Act.

Rule 12(b)(6) standard

The defendants moved to dismiss under Rule 12(b)(6), which asks whether a complaint alleges enough facts to state a legally plausible claim. Because the Section 10(b) claim sounded in fraud, the complaint also had to satisfy heightened requirements under Rule 9(b) and the Private Securities Litigation Reform Act. Those requirements called for particular details about the allegedly fraudulent statements, who made them, when and where they were made, why they were false, and facts supporting a strong inference that the defendants acted with intent to deceive or with extreme recklessness.

Section 10(b) and Rule 10b-5 claims

Judge Preska rejected the plaintiff’s theory that the defendants’ positive statements about the integration were actionable. The court divided those statements into general expressions of optimism and statements about the integration’s then-current status. It held that the optimistic statements—such as claims that the sales force was aligned, the company was making progress, and management was confident—were vague corporate “puffery” or opinions that a reasonable investor would not treat as precise facts.

The court also concluded that the statements were not misleading when read alongside the company’s other disclosures. Those disclosures described the integration as a multiyear effort, warned that mergers could fall short of expectations, identified ongoing challenges, and repeatedly reduced financial guidance. The court therefore found that the defendants were not required to disclose every additional problem an investor might have wanted to know about.

The complaint also failed to plead that the statements were false when made. The plaintiff relied largely on the later abandonment of DN2020 and later statements by new CEO Gerrard Schmid about the company’s complexity, information-technology problems, and operating model. The court held that later events and Schmid’s stated opinions did not establish that the earlier statements were false at the time they were made. The plaintiff identified no contemporaneous reports, analyses, data, or other information showing that the defendants knew their statements were misleading.

The court separately rejected claims based on the later goodwill impairment, required disclosures under Item 303 of Regulation S-K, and the individual defendants’ certifications under the Sarbanes-Oxley Act. Later impairment charges and later-disclosed control deficiencies did not show that earlier statements were fraudulent. The court also found that the plaintiff had not alleged facts showing that generally accepted accounting principles required an earlier goodwill impairment or that the defendants knew their certifications were false or misleading when signed.

Scienter

“Scienter” means the required fraudulent intent or extreme recklessness. The court held that the complaint did not adequately plead scienter. The alleged motive—preserving executive positions and receiving compensation—was too general and could apply to corporate officers broadly. The defendants’ senior positions, their role in the integration, their departures from the company, the later change in strategy, the goodwill impairment, their Sarbanes-Oxley certifications, and their knowledge of the company’s core operations, considered individually and together, did not create the required strong inference of fraud.

Section 20(a) claim

The Section 20(a) claim also failed. Control-person liability requires an underlying violation of the Exchange Act. Because the court found that the complaint did not adequately plead a primary Section 10(b) or Rule 10b-5 violation, the control-person claim necessarily failed as well.

Disposition

The court granted the defendants’ motion to dismiss and dismissed the Consolidated Class Action Complaint without prejudice. The plaintiff was permitted to file an amended complaint within 30 days. The court warned that the proposed class would not receive unlimited opportunities to correct the pleading. The Clerk of Court was directed to close the pending motion.